15th January, 2021
By Bayo Onanuga
The Buhari administration is now caught in a policy quagmire over whether petrol subsidy should be resumed or allow the market to determine the price.
As far as the administration is concerned, the subsidy regime has ended, so as to free cash for other social and economic needs of Nigerians.
However, the recent rise in crude oil prices to about $56.42 and the depreciation of Naira have jacked up the landing cost of petrol.
Some reports said the landing cost is about N180 per litre.
Thus the NNPC, the main importer of the product is back to the situation, where it has to book the price variance as under-recovery losses.
Since the NNPC is not a Father Christmas, the differential will be deducted in the money the NNPC remits to the Federation account.
Thus the three tiers will soon begin to feel the impact of NNPC’s shrinking contribution to the revenue pool.
The price of petrol has always been a politically sensitive issue in Nigeria, as the citizens cannot understand why they have to pay expensively for the product.
But that sentiment can no longer hold after Buhari regime approved a policy of total deregulation of the downstream.
His administration inherited deregulated kerosene and diesel market and has now thrown petrol into the bracket.
In September, the Executive Secretary of the Petroleum Products Pricing Regulatory Agency (PPRA), Abdulkadir Saidu, stated that PMS prices would henceforth be determined by the forces of demand and supply and the international cost of crude oil.
The agency said it would no longer release guiding price bands for Premium Motor Spirit (PMS).
According to him, the role of the agency would henceforth be to ensure that oil marketers do not profiteer, as petroleum marketers are now free to source for product and fix their prices.
In 2020, a steep decline in global crude prices triggered by the global pandemic completely wiped out the subsidy via significantly lower landing costs, paving the way for a reduction in the pump price of Petrol in mid-March.
The PPPRA announced a reduction in ex-depot price to N113/litre and official pump price to N125/litre.
Since then, the PPPRA has gone on to raise fuel pump price to N135-N145/litre in April before implementing a reduction to N121.50 – N123.50/litre in June.
An increase to N140.80 – N143.80/litre in July was implemented and was raised again in August to N148 – N150/litre to reflect rising crude prices.
In November, the NNPC increased its ex-depot price which led to an increase in the pump price of petrol to between N168 and N170/litre.
Following a meeting with the Labour Union leaders on 7 December however, the Minister for Labour and Employment, Dr Chris Ngige, announced that the Federal Government was going to reduce the pump price of petrol from N168 to N162.44 per litre effective 14 December.
The Minister, however, noted that the reduction will not impact government’s deregulation policy.
Petrol is currently being sold at between N162- N165 per litre in many filling stations across the country.
Once again, the volatile petrol has presented the Buhari regime with another policy quagmire.
Will it increase the price to N185-N190 and incur the wrath of labour leaders and the citizens?
Will the administration ask the NNPC to continue to absorb the price differential and unwittingly bring back the subsidy regime?
Analysts at City Securities Limited (CSL) said as much as the removal of subsidy is beneficial to the economy, an increase in the pump price may not be appropriate at this time.
“We have always expressed concerns that the timing (removal of subsidy) may be inopportune and the government be forced to return to the subsidy regime given the effects of the pandemic and recent hike in electricity tariffs on the already squeezed Nigerian consumer.
“This is because, another increase in fuel price may be the last straw that would break the camels back and will be met with severe backlash from the masses particularly as it will be coming immediately after the FG effected a significant increase in electricity tariffs in November”.